The Next Two Months: Best Case, Medium Case, Worst Case

David Galland put together an analysis worthy of your time where he discusses various viable scenarios we may see play out with the US dollar, stocks, commodities, and precious metals in coming months:

…given the current ill health of the dollar, I remain convinced that the Fed will pause in its blunt-force monetization, come June. And that is likely to provide a shot in the arm for the dollar – versus the equivalent of a shot in the head to the dollar, should they reverse themselves and attempt to continue monetizing at the same elevated levels, past June. Among other consequences, a rising dollar could spell trouble for overheated commodities, at least over the short term.

The big unknown, of course, is what will happen to U.S. Treasury rates. And for reasons discussed a moment ago, this is a really important unknown. We shouldn’t have to wait overly long for some answers. But while we wait, a few scenarios to ponder:

Best Case: For a time, post-June the Fed becomes a relatively less important player at the Treasury auctions, buying about $17 billion in Treasuries, vs. the $100 billion or so they are buying now, and the market responds favorably to the policy shift. The gap left by the Fed is filled in by institutions, and by friendly governments, looking to roll back their diversification into the euro and the yen – given the poor outlook for both. For a while Treasury rates remain relatively stable. And that encourages the U.S. government to continue spending willy-nilly and keeps the party for equities continuing for awhile longer, albeit with the participants on edge and watching the exits for any movement.A rebound in the dollar, one result of an inflow of renewed foreign buying, would hit the commodities, causing them to underperform until it becomes obvious to all down the road that the Fed will have to once again begin monetizing.

Medium Case: Post-June, participation at the Treasury auctions weakens, but not disastrously. Rates rise, but also not disastrously. The economy teeters on the edge, but doesn’t fall. Neither does the dollar rise overly much, and something akin to a twitchy status quo continues as people wait for the other shoe to drop, as it inevitably must given that the overarching problem of sovereign and household debt has not been resolved. Volatility in equities and commodities increases, but there is no sustained move one way or the other. Yet.

Worst Case: Post-June, auction participation falls significantly, and interest rates begin to accelerate to the upside, sending equities markets into a tailspin, dragging commodities down with them. The Fed quickly reverses course and begins writing the big checks to the Treasury, stabilizing interest rates but sending shock waves through FX markets as the dollar hits the floor and discovers the floor is made of glass.The precious metals and other commodities soar. With nowhere else to run, investors begin bargain shopping for fallen equities – which are linked to tangible businesses, after all – and they bounce relatively quickly as well. Meanwhile, as the dollar collapses, the cost of everything begins to soar, crushing the unprepared and triggering real hardship. Unable to push interest rates higher to head off the price inflation, the Fed heads retreat to a hidden bunker and begin looking for friendly countries willing to give them sanctuary.

Of course, no one can see the future – but I think all three of those scenarios are likely to materialize in the relatively near future, one after the other from Best to Worst.

If I am right, then the way to play it is to expect a near-term rally in the dollar. While the U.S. dollar is toilet paper, it is of a better quality than the euro or the yen. Which is not to say that it doesn’t deserve its ultimate fate – the fate of all fiat currencies – but rather that, as long as the Fed shows some restraint here, it may be able to stave off that fate a bit longer.

With the second round of quantitative easing slated to come to an end in June, there may very well be a reprieve for the dollar – albeit for a short period.

We’ve maintained that any market crash or correction in equities, commodities and precious metals would likely have to occur as a result of upward pressure on the dollar. As Mr. Galland points out, the “best” case scenario that will play out initially is an official halt to Fed monetary easing, which will be followed by a generally positive sentiment all around.

This should sound an alarm for what’s coming next.

How long this will last is anyone’s guess, but optimism in stock markets and renewed US dollar strength will be short-lived, especially if we consider that earnings reports post-Fukushima may be, in effect, a collapse countdown clock ending sometime in July. If the Fed does curb their purchases of US Treasuries and the only buyers that remain are non-government institutions and foreigners, then sometime in June/July we may very well see a breaking point in stocks and commodities, as well as recent parabolic moves in precious metals like silver.

Once that breaking point is triggered, it is possible that we get into flash crash territory, and then potentially a sustained and rapid crash on the order of late 2008. How severe will it be and will we go to new lows? Impossible to say, because it is an unknown variable essentially in the hands of Federal Reserve policy. For an asset like silver, which has been rocketing up for over a year, Pragmatic Capitalism via The Daily Crux suggests that we could be looking at a pull back from the current $50 all the way down to between $30 – $35 by this July – a significant, and for investors, very scary decline. Stocks and commodities have seen similar gains – and the same fate may await them during the “medium” case phase described by Mr. Galland.

So, if you see the “best” case scenario of general euphoria, followed by the “medium” case scenario of collapsing stock markets and commodities a short time later, then your personal preparedness alarm’s decibel levels should go up a few notches, because what’s coming next is not going to be fun.

At this point, unless the Fed and the Obama administration want complete panic, they will be left with no choice but to infuse the system with even more cash in an effort to ‘stabilize’ financial markets.

However, this time around those stabilization policies could be the final nail in the coffin, leading eventually to unprecedented inflation levels in the US, and the real possibility of a US dollar collapse and hyperinflation.

It is our view that, while events may not necessarily play out exactly as described, an increasing number of people understand that the system is deteriorating, which explains why many are preparing at unprecedented levels. For those who still have cash on hand, you may see one more great buying opportunity for precious metals and food commodities before the next inflation leg up.

We urge our readers to remain vigilant because we are either at, or very quickly approaching, the precipice. June and July may be critical in determining how severe the next phase of this economic crisis will be.

Look for the signs we’ve discussed in this and previous commentaries, as they may be the harbingers of the next high intensity wave.

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The common man cares only about the price of three things; food, energy, and housing. They do not give one shit at all about the markets and are growing weary of the bullshit policies of the FED and U.S. Government which continually reward the very behaviors which have brought us to the precipice of financial ruin. The saddest thing of all really is the fact that there is now an actual majority of voters who can and will reliably vote for bread and circuses at each and every opportunity from here on out, which only serves to strengthen the perceived necessity of both the FED and big Government; thus guaranteeing a very undesirable end result.

My guesstimate is that when the FED wraps up it’s QE2 monetization in June, that treasuries will response similarly to the way MBS’s did when the FED officially exited from buying them last year and that was not much change.

How did the mortgages rates not change that much with the #1 buyer stopped buying the craptastic questionable paper? I suspect 2 things, 1) better quality from origination and 2) they kept buying them but with different vehicles that they have established running concurrently as ‘shock absorbers’

So when they officially start wrapping up QE2,

1) They will still be involved in purchasing treasuries in similar quantities, but with different back door established shock absorber vehicles purchasing larger quantities.

2) The underling value of the treasuries will be bumped up with ‘Government Austerity Plan‘, i.e. cuts in public service, social security, medicare + increases in taxes.

Not much to look forward to one way or the other.
@Hi – Right on. Our guberment math = 1 – 1 = 2
I heard that this morning, one of our local theaters broadcast the royal melding (4:00 in the fricking morning!) and that it was sold out! Can you believe it? I wasn’t surprised but I was dumbfounded. Amazing!
Thought this interesting and sorta followed the story above.http://money.cnn.com/2011/04/27/news/companies/walmart_ceo_consumers_under_pressure/index.htm
We finally have sunshine today. Garden time!
Have great weekends and be safe.
(Where do you guys buy your honey?)

Indeed, the country has been in trouble for awhile. Like decades. In that time, both parties have been in office and they have followed the same foolish policies. You can’t truly understand our situation until you stop thinking in terms of parties. That ridiculous game has only served to keep everyone busy arguing over things that don’t really matter. Meanwhile, those in power have built a world that serves their own interests at the expense of everyone else’s.

Pure speculation. Silver isn’t being driven by anyone other then the people who believe its value will determine what types of food you will be able to purchase in the future. Even if the Fed says silver is worth a dollar I can tell you it will take 10 oz. to buy a box of my 45ACP rounds in the future because I determine the value of the trade not the government. I buy silver for one reason only and that is because I believe I will be able to either eat or to get from point A to point B with it down the road. IMHO

Euro is not good even for toilet paper. It is tough as sandpaper and most likely a toilet attempt would cause bloody outcome.
Nowadays a good use for euro, is for monopoly currency.
To get serious now, all of the scenarios seem likely to occur. In any case, the current global condition cannot be compared to something similar, and no economic models can predict what is going to happen.
Everything and nothing may become reality.
Finally, no economic genious predicted this during the Lehman brothers collapse.
All those suckers were trying to persuade us, that it was something temporary, and that would end in some months.
Today, almost three years later, it’s getting worst and with no visible exit.
Stay alert people.

All three are happening (although he says “post June” for all three) in my opinion, the 1st scenario is going to happen first followed quickly by scenario 2. And as things don’t go “as planned”, scenario 3 kicks in! (Possibly by Fall!)

Look Out! You didn’t think this was going to be easy did you? It’s going to get volatile and if you’re not quick, ready and prepared, well I’m sorry to say…. You lose!

I believe that we have less than two weeks before the “SHTF” for the dollar & comex, CME.
It is going to get ugly very fast…..
People say the end of june or july…No NO, this is going to happen in May by the end of the second week…….
If you are not prepared by now !!!! don’t bother trying…. just go to home depot or lowe’s and buy a good shovel !!!! . Just dig a few holes for yourself & your family……..

Comments…..WHITEWASH? lighten up!! if your ready,thats great,leave the rest of them too, their own demise!!! If their not ready now,to some extent they never will be. Regardless of what you or anyone else says.Sorry, thats just the way things are ,and will always be.You can;t tell the dead anything!!! (death defined by a closed mind) can’t happen,won’t happen.I can’t really say, when all hells gonna break loose. Maybe next week, next month,next year? I”M not sure anymore. I’M REALLY TIRED OF LIVING in KIND OF FEAR..I’m ready for the dark days ahead, and will tell all of those who will listen to prepare.

Charlie, I won’t disagree that both parties are 80% similar. But the monster in the white house doesn’t fit into either party. Oh yeah, he “says” hes a democrat but I’m not sure WHAT he is other than an America hating anti-capitalist who wants reparations for the so called poor.

The charts say it all. Look at the change in 2009 & 2010. It is frightening.

It tells us that this President is vastly different from all the rest. And not for the better. For the much, much worse.

People in amerika are uneasy about obama, most just don’t know exactly why. Some will say it’s economic uncertainty, or the raging conflicts around the world, or…just something about the future. They can’t quite put their finger on it.
And many are angry at the prez and his administration and they’ll say it’s the insane debt being added up, even admitting the republicans role in the fiasco but blaming BO more. Or it’s his panty-waist dealings in foreign policy. He’s embarrassed us with his apologies and suck ups to world leaders. Others just hate him for his Marxist ideology or his muslim roots.
There are even those that dislike him because of his pushy, know-it-all, no-talent wife.
Through an extended period (10 minutes) of profound and intense navel gazing, I think I may have discovered an alternate explanation. Looking at his strong desire to redistribute everything so that economically we are all the same, even if it means equally poor; and his willingness to live like the emperor while preaching mao-flavored equality for all us peons; and his burning desire to be number 1 in the group even though he has less talent than others seeking the position; and his smart-ass condescending remarks when speaking candidly, I have come to the conclusion…..Obama is channeling John Lennon!

Obama is more Bush than Bush. He’s actually taken the same policies and either continued them or followed them more to the extreme. He’s Rupublican-lite. If you can’t acknowledge that then your just playing the same old tired political bullshit games. He’s taken the same money and orders from the people in power just like Bush did, hell, just like Reagan did. Wake the fuck up.

Obama is the same guy now that he was as Congressman.Except that he has broken ALL his pre-election promises faster than his predecessor.Some changes!Well,as least he made the history book as the first black to have made it to the top AND be the slave of the UBER-Rich at the same time.Betcha he’ll be the last Bro’ to sit in THAT seat in our lifetimes.(a Harvard fool is only the most expensively educated one.Just ask what Georgie Bush’s SAT scores were when they let him in.)Better men were refused entrance to GIVE either one the seat.THANKS A LOT HARVARD,WE the people SUFFER because of your(UBER-RICH) Class system school.You should have stayed a theologian’s school…..the country would be better for it.
Best to all (except Harvard)
GFG

Whitewash, anyone willing to prepare today will be better off then the majority who will never prepare. Someone willing to help themselves is better then the many who will only wait for the government.
To everyone else, I’m from a town with no malls and today in the largest city in Alaska, I went to a mall and as I walked through I had two thoughts, 1 materialism, 2 what a waste. All those that surrounded me where caught up in the best and newest of clothes, gadgets and accesories. It’s sad. I was very proud of my son who looked and did not buy anything but lunch. I’m not done with my preps, I met my goals, and I set them higher, I anticipate doing this again and again as long as I can. beans, bullets, bandaids, books.

It’s not the next two months you need to worry about it’s next year new taxes and the year after more inflation and 2014 when the new Nation wide Mandatory health insurance kicks in with the new austerity and more nation wide security control measures!

You can do that but it’s easier and less expensive to just prep a little at a time. Every time a store has a sale on certain things, I stock up. And I use coupons, especially at stores that double them.

Hi Guys,
It is very embarrassiing to have the first black man to be president be such an elitist socialist. But please, please don’t think there are not black conservatives that love our country. Not that I beleive in either party anymore. I am hoping we have at least a year left before SHTF. I still have friend and family that need to be conviced the government as it is, can not save us. My husband and I are still prepping as fast as we can . Praying in Downeast Maine.

You might want to rethink this June or July theory because they are conducting another NATIONAL LEVEL EXERCISE in May from the 5th to the 11th “Simulating” the collapse of the Madrid Fault, but, what troubles me the most is the fact that they also have been storing millions of caskets in northern Georgia and have also ordered an undisclosed number of “Underwater Bodybags” for this so called “Exercise”.
They are currently 3 for 3 when it comes to “Exercises” turning into real events,
1. The bombings in Sain
2. The 7/7 bombings in London
3. 9/11 bombings of the World Trade Center
In ALL of the “Events” were being conducted “Exercises” in which they were training on the EXACT scenario that became a REAL EVENT in REAL TIME simulating EXACTLY what happened!
Will they be 4 for 4 come May?

I was playing my Michael Jackson “we are the world” cassette and trying to hold hands with my neighbor (her husband’s out of town), all in the spirit of brotherly love, of course, when suddenly it hit me…..We aren’t the world! We are a bunch of self-focused individuals living in a bunch of manipulated semi-sovereign nations and we all have different views and different ideas about everything in life! So I wrote a song about it (after I recovered from the slap she gave me- evidently her idea of brotherly love is a little different than mine)

We aren’t the world…..we aren’t the children
We aren’t the ones who make a brighter day with compact flourenscent lighting,
We aren’t the ones that want to save the planet by returning to the stone age,
We don’t want to live together, we want to be left the hell alone,
We’ll make our own decisions so get out of our faces if you know what’s good for you,…la la la

I guess it still needs a little work! But if you sing it to the tune of “we are the world” it is kind of refreshing!

Chuckles: I stock up like you do, using sales and coupons getting canned meats, baked beans, etc and dry goods at Sam’s and other local grocery stores. I hate the long term storage food except for the beans, oats and rice either in #10 cans or 5 gal buckets.. I tried some samples of freeze dried entrees and they were horrible. There are mail order outfits that sell natural salt, raw sugar and honey.

Comments….. Well if the head honchos at WalMart are worried, then you know something is up. They are worried that people are running out of money before the first of the month. Living pay check to pay check.

@SmokinOkie, I think your lyrics would fit the music of machine gun fire coupled with politicians and bankers screaming and begging for mercy quite well. “We aren’t the world (rat-a-tat-tat AAHHHGGGGGGG!!!!) We aren’t the children (OOHHHHHHhh God, pleas NOOoooooooo……….) Wanna do a duet?

Listen people, waiting around for things to blow in our face is isanity. It may not be in june or july but there is no doubt that it’s on the way because nothing has changed and look at us, we are sitting around like dopes because we don’t know what to do.

“WAKE UP!” – JOIN THE REVOLUTION
Read “Common Sense 3.1” at ( http://www.revolution2.osixs.org )
We don’t have to live like this anymore. “Spread the News”
—-
FIGHT THE CAUSE – NOT THE SYMPTOM

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